Q4Audit programme for purchases
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The assistant of CA K is assigned responsibility of drafting 'audit programme' relating to purchases appearing in financial statements of 'Broad Industries', a partnership firm. The said firm is a GST registered tax payer and is engaged in manufacturing of packing boxes from a special type of paper taxable under GST. Help him by drafting a sample audit programme for purchases.
Q5Detection risk - SA 200
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Satranga Foods Private Limited is engaged in manufacturing of pickles. The auditors of the company have planned audit procedures in respect of recognition of revenues of the company. Despite that, there is a possibility that misstatements in revenue recognition are not identified by planned audit procedures. Identify and explain that particular risk in detail.
Q6Impact of IT risks on audit
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IT related risks can have an impact on audit. In what different ways, such risks can have an impact on audit of financial statements?
Q7Inspection as audit procedure - SA 500
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CA Kanika audited books of accounts of Engineering Ltd. for the financial year 2022-2023. The auditor used an audit procedure according to which all the documents and records maintained by the company were checked in detail to obtain audit evidence. Explain the audit procedure used by the auditor. Comment on reliability of audit evidence obtained by performing such an audit procedure in some situations.
Q8Auditor control over external confirmations - SA 505
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CA J is conducting statutory audit of Gemini Ltd engaged in manufacturing of pharma products. The company is fairly large one and has a well-functioning internal audit department. While considering sending out external confirmation requests to trade receivables outstanding as on date of financial statements, CA J has delegated the process of choosing trade receivables, designing requests and receiving responses from customers to internal audit department. The responses are also received on the mail id of internal audit department. Is the approach of CA J proper?
Q9Opening balances audit procedures - SA 510
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The newly appointed auditor of BTN Limited wants to obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements. What audit procedures should he perform for this purpose?
Q10Meeting with external legal counsel - contingent liabilities
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SPR Ltd has been into the media business since 2001. During the F.Y 2022-2023, many notices were received by the company for hurting public sentiments and financial claims were filed against the company. As an auditor of the company, you requested the management for arranging the meeting with company's external legal counsel. Management is of the view that such meetings are necessary in certain circumstances only. Can you list down such circumstances?
Q11Benami property disclosure requirements - Schedule III
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Proceedings have been initiated against False Limited for holding benami property under law relating to prohibition of benami transactions and the rules made thereunder but such property is not recorded in books of accounts. As a consultant to the company, what will you advise the company as far as disclosure requirements are concerned in financial statements in relation to said proceedings?
Q12Cash credit facility classification and Schedule III disclos
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Droma Shoes Private Limited was established in year 2022-23 for manufacturing of footwear. As funds were needed to carry on its business activities - including for purchase of different raw materials, incurring of regular expenses like power and fuel and payment of wages etc., it had got sanctioned a credit facility amounting to Rs. 2 crores repayable on demand from a bank against primary security of its current assets and collateral security of residential house of one of its directors. Duly signed guarantee documents by directors in favour of bank also form part of bank's loan documentation. Account statement of above facility downloaded from bank's website shows debit balance of Rs. 1.85 crores as on 31st March, 2023. The operations in above credit facility are satisfactory. In this regard:
Q13Ratio disclosure requirements - Schedule III Companies Act 2
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Following is extract of notes to accounts of financial statements of STU Private Limited listing some ratios. Discuss, whether disclosure, given in following manner meets requirements of Schedule III of the Companies Act, 2013. Ignore other ratios which are not listed in extract given below: Current ratio 31.3.2023: 2.50, 31.3.2022: 2.30; Inventory turnover ratio: 3.00, 6.00; Trade receivables turnover ratio: 1.75, 5.00; Net profit ratio (in%): 13%, 10%.
Q14Audit documentation timing - SA 230 vs SQC 1 60-day rule
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Rajni, a CA student, has understood that SA 230 requires auditor to prepare audit documentation on a timely basis. While reading about SQC 1, she notices that time limit for completion of final audit file is ordinarily not more than 60 days after the date of auditor's report. She finds it to be puzzling. Unable to comprehend, she seeks your guidance. Guide her.
Q15Completion memorandum in audit documentation
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Discussing meaning of completion memorandum, elaborate upon its importance.
Q16Subsequent events - SA 560
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CA K is statutory auditor of DEMA Private Limited for the year 2022-23. The company has three plants in India. He is nearing completion of audit procedures relating to financial statements for the year under audit and has yet to sign audit report. Meanwhile, a huge fire had broken out in one of plants of the company located near Nashik on 25th June, 2023 damaging substantial part of machinery and work-in-process resulting in loss of about Rs. 5 crores. Unaware of the incident, he is in process of finalizing his report in first fortnight of July 2023. State few audit procedures to be performed by him to obtain sufficient appropriate evidence for identifying such events. Also explain auditor's responsibilities in this situation.
Q17Going concern - cash flow forecast evaluation - SA 570
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Kundan, a CA student, is part of an engagement team conducting audit of an entity. The audit procedures are nearing completion. He notices that engagement partner has asked for a cash flow forecast from management for next twelve months from date of financial statements. Keeping in view above, answer the following:
Q18Emphasis of Matter paragraph - SA 706
0 marks easy
Mention some examples of circumstances where the auditor may consider it necessary to include an Emphasis of Matter paragraph.
Q19Disclaimer of opinion - scope limitation - SA 705
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CA. S, while conducting audit of an entity is facing the following issues: (i) He has not been provided with necessary support for attending inventory count process of entity as at year end. (ii) Accounts Manager is not providing him present addresses of customers as well as suppliers for sending external confirmations. Even mail ids have not been provided on the pretext of business confidentiality. (iii) He was not able to verify revenues of entity due to lack of complete details. (iv) He has been asking for bills on a sample basis for the purpose of verifying expenses, but staff has been making lame excuses. The matter was brought to knowledge of higher management, but of no avail. The auditor, CA S has come to the conclusion that the possible effects on the financial statements of undetected misstatements would be material and affecting many aspects of financial statements and in such a case, a qualification of the opinion would be inadequate to communicate the gravity of the situation. How should the auditor proceed in such a situation?
Q20Audit of hotels - pilfering and internal control
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Pilfering is one of the greatest problems in any hotel and the importance of internal control cannot be undermined. Explain.
Q21Operating lease vs finance lease - lessee accounting and tax
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From a lessee's perspective, highlight main differences between an operating lease and finance lease only in relation to accounting treatment and tax benefits.
Q22Income recognition norms for NPA - bank branch audit
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While conducting statutory audit of branch of a nationalized bank, it is noticed by CA Z that credit facilities granted to a borrower consisting solely of term loan have been classified as 'Sub-standard Asset' during the year 2022-23 due to failure of borrower to pay EMIs on time. Such EMIs were outstanding for more than 90 days and account was, therefore, classified as 'Sub-Standard Asset'. CA Z has also agreed to above asset classification made by branch management. What are CA Z's responsibilities regarding verification of compliance with income recognition norms by branch in respect of above credit facilities?
Q23Provision calculation for doubtful asset D1 category - bank
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While verifying provisions of advances of a branch of MCO Bank as part of statutory branch audit, CA Z notices that credit facilities consisting of term loan to KRT Enterprises have been classified under doubtful asset (D1) category. The outstanding balance in above term loan account as on 31.3.2023 is Rs. 50 lakhs. Value of security held in account is Rs. 40 lakhs. The branch has made provision of Rs. 7.50 lakhs. Is provision made by branch proper? Discuss.
Q24Preconditions for audit - management responsibility - SA 210
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CA X has been offered audit of financial statements of TDK Industries, a partnership firm. Prior to accepting proposed offer, he insists upon obtaining an agreement of management regarding acknowledgment of its responsibility of having a proper process in place to ensure that financial statements prepared are free from material misstatements. However, management is of the view that it is auditor's duty to detect material misstatements in financial statements and such an insistence by auditor is totally uncalled for. Whose view is proper? Also discuss reasons for arriving at your conclusion. What should be likely proper course of action for CA X in above situation?
Q25Audit quality - SA 220 and SQC 1 relationship
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'SA 220 is premised on the basis that the firm is subject to SQC 1'. What do you understand by given statement in context of audit quality?